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Taiwan Stock Exchange Corporation Guidelines for Securities Brokers in Reporting Failed Trades and Default by Principals(2009.06.12) |
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I. Securities brokers shall report and handle cases of failed trades and default by their principals pursuant to Article 76, paragraph 3, Article 82, and Article 91 of the Taiwan Stock Exchange Corporation (TWSE) Operating Rules, Article 19 of the TWSE Rules Governing Brokerage Contracts of Securities Brokers, and these Guidelines.
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II. Procedures for reporting default: A principal that fails to effect settlement within the specified period is in default. Securities brokers shall report the default in accordance with the provisions below, and shall at the same time notify the principal:
1. Computer transmission: (1) Period for computer entry: (i) When it has confirmed the occurrence of default by a principal, a securities broker shall immediately enter the default information into the TWSE computer no later than 11 a.m. on the second business day after the trade date. However, when bank operations prevent the broker from learning of any shortfall in the deposit of securities prices until after 11 a.m., the information shall be entered immediately, with a deadline of 8:00 p.m., and the bank notice shall be sent with a letter of report to the TWSE for verification. (ii) If the principal is an offshore overseas Chinese, foreign national, or mainland area investor, when the securities broker reports the principal's failed trade and the principal fails to perform settlement obligation on time, the input time set forth in the preceding subparagraph may not be later than 6 p.m. of the third business day after the trade date. (iii) In the case of block trades that are to be settled on the trade date, when it has confirmed the occurrence of default by a principal, a securities broker shall immediately enter the default information into the TWSE computer, no later than 2:30 p.m. on the trade date. In the case of block trades that are to be settled on the second business day after the trade date, when it has confirmed the occurrence of default by a principal, a securities broker shall proceed in accordance with the provisions of items (i) and (ii). (iv) A securities broker that enters information in accordance with the time period specified in items (i), (ii), or (iii) may, at 8:30 a.m. the next morning, receive and review the information on the principal's contractual default and submit it for display on the TWSE public announcement information system for that afternoon. (v) When a natural disaster occurs such that local mayors and county magistrates announce closure of schools and public offices, electronic reporting by securities brokers within the affected region shall be undertaken in accordance with the provisions for handling of settlements due in the TWSE Measures for Responding to Natural Disasters. (2) Accidental breakdowns: When accidental breakdowns result in interruptions in the computer transmission lines, securities brokers shall inform the TWSE Trading Department by telephone, and put information required to be input into written form, and after affixing the seals of the company and responsible person, send it via facsimile to the TWSE, which will subsequently carry out supplemental input based on the information contained in the facsimile.
2. Default report letter:
In any event of default under Article 91, paragraph 3 of the TWSE Operating Rules or in which a principal participating in bidding-to-purchase under the Taiwan Stock Exchange Corporation Regulations Governing Auction of Listed Securities by Consignment fails to perform settlement obligations on time, the securities broker shall submit to the TWSE for recordation a report by letter meeting the requirements listed below.
(1) Content of the report by letter:
(i) The name of the principal.
(ii) The principal's account number.
(iii) The principal's national ID number.
(iv) The principal's address.
(v) The facts of the default.
(2) Copies of documents to be attached:
(i) The front and reverse sides of the principal's national ID card.
(ii) The consignment contract (front and reverse sides).
(iii) The letter of consignment.
(iv) The trading report.
(v) The settlement receipt form.
3. When a securities broker receives a brokerage order to buy or sell securities through an omnibus trading account, if the principal fails to perform its settlement obligations and default occurs, the securities broker shall report the default on the basis of the principal's brokerage account.
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III. Reporting of failed trades and cancellation operations:
If the principal is an offshore overseas Chinese, foreign national, or mainland area investor, and the principal has failed to complete settlement on time and the securities broker has not reported default, the securities broker shall input the failed trade information into the TWSE computer by 11 a.m. on the second business day after the trade date; the same applies in the case of block trades to be settled on the second business day after the trade date.
The securities firm shall keep detailed records of the handling of failed trades under the preceding paragraph.
If it is on record that the securities broker reported a failed trade to the TWSE as provided in the preceding paragraph, if by 6 p.m. on the third business day after the trade date, the principal performs its settlement obligations on time for its securities sold or for the price payable after netting its buy and sell trades or the securities broker reports an out-trade, the securities broker shall report to the TWSE to cancel the record of the failed trade.
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IV. Procedures for handling failed trades:
1. If a securities broker reports a failed trade by a principal, if the securities broker is required to carry out settlement procedures on the principal's behalf because the date for settlement by the principal comes due, when the principal performs its settlement obligation on time, the securities broker shall use any securities it has received due to carrying out settlement on the principal's behalf to return securities borrowed at that time, and shall use any price it has received due to carrying out settlement on the principal's behalf to offset any price it paid at that time.
2. Securities borrowed, funds paid on the principal's behalf, and relevant costs incurred by the securities firm due to a failed trade shall be repaid by the participant to the securities firm at the time it performs its settlement obligation on time.
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V. Procedures for handling default:
1. A securities broker reporting on the default of a principal in accordance with Article 91, paragraph 1 of the TWSE Operating Rules shall immediately undertake settlement procedures on behalf of the principal. For handling of securities, or funds for the price thereof, received as a result of settlement, the broker shall engage another securities broker to dispose or purchase securities on the Exchange no later than the first day following the principal's default. Resulting gains or losses shall be handled in accordance with Article 19 of the TWSE Regulations Governing Brokerage Contracts of Securities Brokers.
2. The securities broker shall make separate reports on defaults on settlement obligations for securities purchased or sold by the same principal, and the total amount of securities, or funds for the price thereof, received through effecting settlement on behalf of the principal shall be entrusted to another securities broker for handling and may not be offset by the securities broker. However, for the same securities traded through the same account on the same reporting day, securities brokers may offset trades of the same volume.
3. When the securities broker engages another securities broker, in accordance paragraph 1, to handle the funds or securities received, and during the period of handling the principal repays to the securities broker the debt owed for the default and any related fees, the reverse transactions may be discontinued, and any balances not yet handled or for which the reverse transaction has not yet been completed may be returned, and the matter thereafter handled in accordance with Point 8.
4. Following handling of a default in accordance with paragraph 2, the securities broker shall enter information on the handling of the default into the computers of the TWSE, and notify the principal, no later than 10 a.m. on the second business day after the handling of it.
5. When the default of a principal has been reported in accordance with Article 91, paragraph 3 of the TWSE Operating Rules, the securities broker shall buy back the securities in question from the Exchange in accordance with the time period stipulated under paragraph 6 of the same Article, and thereafter seek compensation from the principal himself.
6. Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under paragraph 1 during the period of a single breach reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily volume of the underlying securities during the 20 trading days prior to reporting of the breach, the securities broker may adopt either of the following measures to handle the breach:
(1) If handling of the breach cannot be completed through reverse transactions during the three consecutive business days from the day next following the date of confirmation of the breach by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the breach through reverse transactions within 180 days, and report the agreement or notice to this Corporation via letter for recordation.
(2) The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to this Corporation via letter for recordation.
7. If a securities broker fails to handle the default in accordance with the provisions above, the TWSE may, in accordance with Article 136 of the TWSE Operating Rules, notify the broker to take supplemental action or rectify the situation.
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VI. Procedures for announcing default:
When the TWSE receives a report of default from a securities broker, it will inform all securities brokers based on the particulars of the report, which shall handle related matters as stipulated under Article 76, paragraph 3 of the TWSE Operating Rules. Responsibility for any damage to the rights and interests of the principal or any disputes arising out of such notification shall be borne by the securities broker reporting the default.
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VII. Procedures for cancellation of default:
1. When any of the following circumstances occur in a case of default, the securities broker shall be responsible for verification and shall cancel the default through a letter of report with evidentiary documents attached:
(1) Failure of the principal to make settlement payments within the stipulated time period resulting from negligence in banking operations.
(2) Negligence by the broker in mistakenly reporting a principal's default.
(3) Confirmation that the principal's default did not arise from an arbitration decision, a final judgment of the courts, or any other official document having the same effect as a final judgment.
(4) Circumstances conforming to the conditions of Article 91, paragraph 4 of the TWSE Operating Rules.
(5) When the principal, after occurrence of default, submits evidentiary documents showing that failure to complete timely settlement for the given discretionary account was due to the consignee's failure to perform responsibilities arising out of an unauthorized trade by the consignee.
(6) Other reasons sufficient to demonstrate that the default was not attributable to the principal.
2. When securities brokers report cancellation of default and fail to perform complete verification of the grounds for cancellation or to attach evidentiary documents as specified in the preceding paragraph, or when, upon examination, the attached documents and the reasons stated in the report do not appear to satisfy the formal requirements for proving that the default was not attributable to the fault of the principal, the TWSE will not accept or process such report; the securities broker reporting default shall bear full responsibility for any damage to the rights and interests of the principal or for any disputes arising from such a report.
3. If the cancellation of default reported by the securities broker contains any false or misleading statements, the TWSE may handle such event in accordance with Article 38 of its articles of incorporation or Article 141 of the TWSE Operating Rules.
4. If a securities broker mistakenly reports a default by a principal, the TWSE may handle the matter, according to the circumstances, in accordance with Article 38 of its articles of incorporation or Article 144 of the TWSE Operating Rules.
5. When a securities broker has cancelled a case of default and the TWSE has approved the cancellation, the case shall be closed and filed for reference. If the facts of the case have already been reported to other securities brokers, the securities broker may receive and review the information on the cancellation of the principal's default at 8:30 a.m. the next morning and submit it for display on the TSCE public announcement information system for that afternoon.
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VIII. Procedures for announcing conclusion of a case:
Upon conclusion of a case, the securities broker shall report its conclusion to the TWSE; the TWSE will in turn inform all other securities brokers.
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IX. These Guidelines shall be implemented upon approval by the competent authority.
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